US Treasury rules China not a currency manipulator, but yuan 'significantly undervalued'

US Treasury rules China not a currency manipulator, but yuan 'significantly undervalued'

The value of China's currency, the renminbi, has been a constant bugbear for the country's major trade partners.

The United States today ruled China was not a currency manipulator, but said the yuan was “significantly undervalued” and a further appreciation in its value against the dollar was needed, MarketWatch reported.

The US Treasury Department’s decision, contained in its semi-annual report to Congress on exchange rate policies, should help avert a potential trade spat between the world’s two biggest economies, the Associated Press said.

According to Bloomberg, Treasury vowed to continue to “closely monitor” the pace of yuan appreciation and push for “policy changes that yield greater exchange-rate flexibility.”

"The available evidence suggest the RMB remains significantly undervalued, and we believe further appreciation of the RMB against the dollar and other major currencies is warranted," Treasury was quoted by Agence France-Presse as saying. RMB refers to renminbi which is the currency's official name.

Beijing’s yuan exchange rate policy has been a constant thorn in the side of US-China relations.

US lawmakers on both sides of the political aisle have accused China of deliberately holding down the value of its currency to give its exports a competitive advantage, flooding US shelves with cheaper Chinese products at the cost of US jobs.

But Beijing defends its currency controls as necessary to prevent large amounts of money flowing in and out of the country, which could potentially destabilize the country’s financial system and threaten economic growth.

China announced last month it was expanding the yuan exchange rate’s daily trading band to one percent. This means the unit can now move one percent on either side of a midpoint set by the central bank every weekday morning.